New property assessments in Denmark and new rules on property taxation

by Malene Overgaard and Caroline Lykke Ladefoged


City window reflection

Valuation of property

In Denmark property taxation is based on the public property assessment. The property assessment is performed every second year by the Danish Property Assessment Agency (Dk: "Vurderingsstyrelsen") and includes both a land assessment and a property assessment. These assessments are used to calculate the property value tax, which is paid to the state and the land tax, which is paid to the relevant municipality.

For many years, the Danish Property Assessment Agency has been in the process of developing a new automatic valuation system which is based on a number of specific information on the particular real estate. Among other things this relates to relevant market indicators for the area with reference to the latest sold real estates in the area within the last 6 years, the conditions of the house, the distance to major roads, water, forest, pollution etc. As for the land, it is evaluated according to the best possible use of the land without taking the current use into consideration. The objective with this new system is to ensure more accurate assessments. Due to the development of the new evaluation system, there has not been any new evaluations since 2011.

Due to a certain level of uncertainty in such assessments a principle of prudence has been implemented along the new valuation system, wherein property owners are taxed based on a value set 20% below the assessment.

The preliminary assessment for 2022

On the 12 September 2023, 1.7 million preliminary assessments for the income year 2022 were published by the Danish Property Assessment Agency. The preliminary assessments are not subject to any manual assessment by the Agency, and the preliminary assessments show that many of them deviate significantly from former assessments as well as the land value for some is significantly higher than the property value in itself, which has caused major public debate.

For the same reason the Danish Parliamentary Ombudsman, Niels Fenger, the 22 September announced that he will look into the processes behind the assessments and the quality of the data used for the preliminary property assessments.

Option for filing a complaint

Generally, there are no option to file a complaint regarding the preliminary assessments, and the option to complain will be available when the assessments are final – presumably in 2025.

As a reaction to horror stories of extreme examples of "unfair" evaluations, the Danish Property Assessment Agency announced that it, contrary to what originally was stated, in some instances will be possible to file a complaint of the preliminary assessment. The cases in which it is possible to complain mainly covers cases where the assessment deviates significantly from the previous assessment or if other special circumstances apply. The latter includes among other situations if the property is for sale, and it is expected that the sales price will differentiate with more than 20%. The same applies to a buyer who buys the property at a price that deviates more than 20% from the preliminary assessment. In such case, the buyer has the right to have the preliminary assessment changed to the price at which the property was actually sold.

More recently, on 26 September 2023, the Danish Property Assessment Agency announced that initial quality assurances of some of the preliminary assessments have shown that there is a risk that the property assessments can be too high for new properties in expensive residential areas. The Agency encourages the private owners affected to contact the Agency.

If a property owner wish to file a complaint, it is advisable to file the complaint as soon as possible, mainly because the final assessments according to the current plan will not be available before 2025. It is also worth noting that it is possible to file a complaint again when the final assessment is received. If the complaint is filed in 2025, a change to the assessment will only be accepted if it means a change of the original assessment of more than 20%.

New Property Tax Act

A new law, the Danish Property Tax Act (Dk: "ejendomsskatteloven"), both relating to a property value tax (Dk: "ejendomsværdiskat") and land tax (Dk: "grundskyld") has been adopted and has effect from 1 July 2023. The law also covers another municipality tax (Dk: "dækningsafgift") relevant for certain businesses that will not be described here. The new law will change the previous property taxation system from 2024 and the main changes are 1) that taxation will now be based on the latest valuation assessment of the property, 2) lower tax rates, 3) a tax discount and ceiling for increase of taxes and 4) a tax freeze.

Another significant change is that the property taxes will be collected via the annual tax assessment for individuals and via the tax account (Dk: "skattekontoen") for companies. Previously only the property value tax was charged via the annual tax assessment.

The taxation will initially be based on the preliminary assessments for 2022 and may subsequently be adjusted when the final assessments are completed, expectedly in 2025.

Lower tax rates for property value tax

Property value tax is payable by individuals owning a property used for their private housing.

As the values of property is generally expected to go up, the percentages for calculating the property value tax are lowered and the threshold is raised. This should indicate that a large portion of property owners will pay a lower property value tax going forward despite generally higher property values.

The property value tax for 2024 onwards will be calculated with 0.51% (earlier 0.92%) of the property value up to a threshold of MDKK 9,2 (earlier DKK 3,040,000) and with 1.4% (earlier 3%) of any additional value. The threshold will be regulated each year which is also a change to the earlier rules.

Tax discount and ceiling for increase of taxes

If the total payable property taxes (property value tax and land tax) increase during the transition to the new tax rules in spite of the lower tax rates, the private property owner will instead receive a tax discount. The tax discount is calculated as the difference between the property taxes for 2024 calculated after the former and new rules. The tax discount scheme is temporary, as a future sale causes the new owner to fully enter into the new property tax scheme without a tax discount. The tax discount rules apply to the majority of ordinary owner-occupied homes, which is acquired up until the 31 December 2023 as long as the property is subject to property tax and/or property value tax for 2024.

Any later increase of payable property taxes will not be included in the discount but will be part of the tax freeze as described below.

Private individuals not covered by the rules on tax discounts and companies will be covered by an increase limitation rule that caps the annual increase in land tax. Land tax is calculated according to percentages set by the municipalities. However, the percentage can maximum be 0.3% and for the income years 2024-2028 there are specific maximum percentages set for each municipality.

Tax freeze

In 2001 a (temporary) tax freeze on property taxation was introduced, thus giving the private property owners an opportunity to "freeze in" tax increases. The new law continues the tax freeze scheme and makes it permanent.

This means that if the property taxes (property value taxes and land taxes) will increase in the future, the increase can be "freezed" whereas it is not paid until the property is sold. Thus, this is actually a loan, and a low interest will apply.

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